Tuesday, July 6, 2010

If you take another look at website and the offers, the banks tries to reassure its potential customers and build its reputation with two things: that First Country is authorized by the Bangko Sentral ng Pilipinas or BSP and that the 10% annual after-tax yield offer is covered by the Philippine Deposit Insurance Corporation or PDIC. So if you're thinking of investing in the bank's instruments, the next logical thing to do would be to check the veracity of these claims.

A Deeper Look

First, let's try to check if the bank, indeed, is an authorized and registered bank of the BSP. On the BSP's website, you'll find this section where you can look the details of a particular bank. Entering "First Country Bank" on the search field yields this result:

Hmm... interesting. So there's no such thing as "First Country Bank" in the BSP's directory. Let's try another search string, this time just "First Country":

So this time we get a result, but not for "First Country Bank" but for "First Country Rural Bank, Inc." Well, the name difference should not really be an issue, if we assume these two banks are one and the same. After all, it's common practice for small and medium businesses to use a brand name that's slightly different from the name of the entity registered with government agencies. But it is also highly understandable if some people view this inconsistency as some sort of red flag.

But are "First Country Bank" and "First Country Rural Bank, Inc." really one and the same bank? If we compare the details of the "Contact Us" page on First Country's website to the bank details in the BSP search results:

We see that both are in Pasig City and have (more or less) the same address. Some of the telephone numbers are the same, although the email addresses are different. Given all that we've seen so far, I'm betting that "First Country Bank" is indeed the same as "First Country Rural Bank, Inc.", but again with the inconsistencies!

Also, we see another name linked to the bank from the BSP directory, this time the bank's president. A quick search shows us that this president is also the president of a pre-need plan company named First Country Plans, Inc., which coincidentally has the same address as First Country Bank. So are the bank and the pre-need firm related? They share the same president, share the same name... What do you think? And rural banks and pre-need firms? Haven't we all heard this before?

Let's now take a look at the PDIC coverage of First Country's 10% per year deposit. If you check out PDIC's website, the first thing you'll see is this statement:

MAXIMUM DEPOSIT INSURANCE FOR EACH DEPOSITOR: P500,000

Which means if your balance is 1 million pesos and the bank goes under, you'll only get half of your money back. And it does not matter how many accounts you have with a bank, you still only get a maximum of 500,000 per bank.

Fortunately, as per that ad on First Country's website, the offer is open to deposits worth at least 100,000 pesos. So if you just deposit any amount up to P500,000, you'll be entitled to both the 10% yield and be PDIC coverage at the same time.

But we have to remember that PDIC coverage does not guarantee that the bank will not run away with your money. If the bank does do something a-la-Legacy, best case is you will be inconvenienced with having to wait to get your money back; worst case is you'll lose your deposit and subsequently suffer a heart attack.

The Verdict

Perhaps the most important thing we can get from the PDIC that can help us decide whether to invest in First Country or not would be this "Bank Deposits Advisory" document on the website, which includes the following reminders:

The rate of interest paid by banks to deposits and other terms and conditions vary among banks.

It is best to deposit in a bank offering rates generally comparable with those of other banks.

The higher the rates, the higher the risk.

Offers that sound too good to be true may not be true at all.

For debt investments like bank deposits, bonds, and notes, the foremost determinant of investment risk would be the trustworthiness of the borrower. Ask yourself: is the bank capable of paying its financial obligations to you? And even if it is, what's the chance that the bank will fuck you over and run with your money instead, as some of these greedy motherfuckers are wont to do?

So, will I deposit 100,000 pesos in First Country Bank to earn 10% per year tax free for five years? Hell no. I'd rather buy a bond paying 7.5% per year after taxes, at least I'll sleep more soundly. And I don't really care much for the PDIC coverage, not when it takes them up to a year to give the depositors' money back, as Henry pointed out earlier.

I'm not saying First Country is a fraud: it may very well be that the bank's legit and all that. But all the inconsistencies and the red flags, coupled with the nightmarish experience of thousands of depositors with rural banks and pre-need plans these past few years, have made me skeptical and cynical of these kinds of offers and furious at the all the people who permit and support this irresponsible and malicious economic practice.

So, no Henry. I don't think investing in First Country Bank's offer is such a good idea. Personally, I think it's simply too good to be true.